Digital asset fraud and pig-butchering schemes are top threats to investors, NASAA says

Many fraudsters are playing off of investors’ fears of economic uncertainty to perpetrate their scams.

The biggest threat facing retail investors this year is digital asset fraud, according to the North American Securities Administrators Association.

In a survey of state and provincial securities regulators, 62% cited digital asset frauds as the scheme that presents the most danger to the public. The second most-cited threat, at 42%, were so-called “pig-butchering schemes,” while 41% cited social media schemes.

“Fraudsters are continuing to leverage broad public interest in digital assets,” Andrew Hartnett, president and deputy commissioner of NASAA’s Iowa insurance division, said in a statement. “However, their pitches often have nothing to do with blockchain technology and instead play on fear of missing out or get rich quick schemes along with other emotions. In many cases, they are downplaying the need for due diligence and are pressuring investors to quickly part with their money.”

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Pig-butchering schemes involves a perpetrator creating a fake profile on social media, dating apps or messaging services like WhatsApp to try and establish create a friendly or romantic relationship with the target before soliciting them for money, often in the form of cryptocurrency. The term comes from the practice of butchers fattening a pig before slaughter.

“Pig-butchering schemes are effective because bad actors have become adept at using fear and anxiety as tools for disarming investors,” said Brett Olin, co-chair of the NASAA enforcement section committee. “Skepticism and caution are the best defenses to pig-butchering schemes. Investors should take the time to independently investigate promoters and products before sending their funds.”

NASAA also reported that bad actors are using changes in the economy in their schemes. More than 70% of regulators indicated that they were either investigating or recently brought enforcement actions against criminals playing on fears of economic uncertainty.

Many schemes involve promising to provide safety from turbulent markets and removing all economic risk from investments. Although there are legitimate products to hedge against inflation and products that aren’t correlated with stock markets, investors should be reminded that all investments bear risk, Hartnett said.

“Remember, if something sounds too good to be true, it probably is,” he said. “Do your research and obtain as much information as possible about potential investments, advisers and investment adviser firms before deciding to invest your hard-earned money. Being pressured to act is a huge red flag.”

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